How is statutory redundancy pay calculated for employees?

Employees are eligible for redundancy pay and other statutory entitlements under certain conditions when they’re made redundant. Although various rules and regulations surround the process of making employees redundant, one of the most crucial aspects is correctly calculating the pay, which could potentially include notice pay, wage arrears, and outstanding holiday pay.

So how do you work out redundancy payments for your employees?

 

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How to calculate redundancy pay for employees

Redundancy pay is based on three elements:

• Length of service in full years
• Weekly wage
• Employee age

The first aspect to look at is whether or not the employee has worked for the company on a continuous basis for a minimum of two full years. If so, you can continue to calculate how much redundancy pay they’ll receive as an employee.

When calculating their statutory redundancy pay you should also keep in mind the caps the government have applied to certain aspects. The current caps are as follows:

• Length of service with the company: 20 years
• Weekly pay: £525 for redundancies on 6th April 2018 and later
• Maximum statutory redundancy pay: £15,240 for redundancies on 6th April 2018 and later

Calculating employee redundancy

You need to multiply the employee’s weekly wage by the number of full years’ continuous employment with the company, according to their age when they’re made redundant.

• Aged 18-22: half a week’s pay for each full year of service
• Aged 22-40: one week’s pay for each full year of service
• Aged 41 and over: one and a half week’s pay for each full year of service

The first £30,000 of redundancy pay is free of tax and National Insurance, but other statutory payments including pay in lieu of notice and holiday pay are taxed at the normal rate.

Notice pay should be paid if your employees have to leave the company immediately rather than working through their full notice period. Holiday pay may also be due to some employees.

Director redundancy - are you also an employee of your company?

It’s worth pointing out that as a director, you may also be eligible to receive statutory redundancy payments if you can prove your status as an employee of the company. You don’t necessarily need a written contract of employment in this respect, as an oral or implied contract may suffice.

The calculations are the same for director redundancy as for other members of staff. You may also be able to claim other entitlements in a similar way, such as holiday pay and notice pay.

For more information on calculating statutory redundancy pay for employees or staff redundancy, contact our experts at Redundancy Claims UK. We’ll ensure you fulfil your obligations as an employer, and advise on the possibility of claiming redundancy pay as a director of the company. Please get in touch with one of the team to arrange a free same-day consultation. RCUK are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830522. You can check our registration here.